Adair v. State, Docket No. 121536, Calendar No. 5.

• Decision Date: 09 June 2004
• Docket Number: Docket No. 121536, Calendar No. 5.
• Parties: Daniel ADAIR, a taxpayer of the Fitzgerald Public Schools, and Fitzgerald Public Schools, et al., Plaintiffs-Appellants, v. STATE of Michigan, Department of Education, Department of Management and Budget, and Treasurer of the State of Michigan, Defendants-Appellees.
• Court: Michigan Supreme Court

680 N.W.2d 386

470 Mich. 105

Daniel ADAIR, a taxpayer of the Fitzgerald Public Schools, and Fitzgerald Public Schools, et al., Plaintiffs-Appellants, v. STATE of Michigan, Department of Education, Department of Management and Budget, and Treasurer of the State of Michigan, Defendants-Appellees.

Docket No. 121536, Calendar No. 5.

Supreme Court of Michigan.

Argued October 14, 2003.

Decided June 9, 2004.

Pollard, Albertson, Nyovich & Higdon, P.C. (by Dennis R. Pollard and Richard E. Kroopnick), Bloomfield Hills, MI, for plaintiffs.

Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, and Jane O. Wilensky, Edith C. Harsh, and D.J. Pascoe, Assistant Attorneys General, Lansing, MI, for defendants.

White, Schneider, Young & Chiodini, P.C. (by James A. White, Kathleen Corkin Boyle, and Timothy J. Dlugos), Okemos, MI, for Michigan Education Association, amicus curiae.

TAYLOR, J.

This Court is once again called on to decide if the state has met its constitutional mandate to adequately fund public education. Plaintiffs are taxpayers and school districts seeking a declaratory judgment that the state failed to meet its funding responsibility mandated by Const. 1963, art. 9, § 29, a section of our Constitution that is commonly known as the "Headlee Amendment." The complaint asserts that the state did not provide funding to school districts in Michigan for the necessary increased costs of providing activities and services that are new or mandated at an increased level since December 23, 1978. The Court of Appeals found that claims plaintiffs did raise or could have raised in earlier suits were barred pursuant to the doctrine of res judicata.¹ As to those issues that were not subject to res judicata analysis, the Court of Appeals held that they were otherwise barred because of releases the parties executed or the activities² were not new or were not increased activities within the meaning of Const. 1963, art. 9, § 29. We affirm in part, reverse in part, and remand.

I. CONSTITUTIONAL PROVISIONS

Under Michigan's Headlee Amendment,³ as of 1978, the state is forbidden from reducing funding levels for the necessary costs of existing activities or services mandated by the Legislature, and is to completely fund the necessary costs of new or increased activities or services mandated by the Legislature:

The state is hereby prohibited from reducing the state financed proportion of the necessary costs of any existing activity or service required of units of Local Government by state law. A new activity or service or an increase in the [level] of any activity or service beyond that required by existing law shall not be required by the legislature or any state agency of units of Local Government, unless a state appropriation is made and disbursed to pay the unit of Local Government for any necessary increased costs. The provision of this section shall not apply to costs incurred pursuant to Article VI, Section 18. [Const. 1963, art. 9, § 29.]

These two different provisions in art. 9, § 29 have been described by this Court as follows:

The first sentence of this provision prohibits reduction of the state proportion of necessary costs with respect to the continuation of state-mandated activities or services. The second sentence requires the state to fund any additional necessary costs of newly mandated activities or services and increases in the level of such activities or services from the 1978 base year. [Judicial Attorneys Ass'n v. Michigan, 460 Mich. 590, 595, 597 N.W.2d 113 (1999), quoting Mayor of Detroit v. State, Dept. of Management and Budget, 228 Mich.App. 386, 396, 579 N.W.2d 378 (1998).]

To assist the public in understanding the different thrusts of these two sentences, this Court has described the first sentence as a "maintenance of support" (MOS) provision and the second sentence as a "prohibition on unfunded mandates" (POUM) provision. See id. Accordingly, to establish a Headlee violation under the MOS clause, the plaintiffs must show "(1) that there is a continuing state mandate, (2) that the state actually funded the mandated activity at a certain proportion of necessary costs in the base year of 1978-1979, and (3) that the state funding of necessary costs has dipped below that proportion in a succeeding year." Oakland Co. v. Michigan, 456 Mich. 144, 151, 566 N.W.2d 616 (1997) (opinion by Kelly, J.). Under the POUM clause, they must show that the state-mandated local activity was originated without sufficient state funding after the Headlee Amendment was adopted or, if properly funded initially, that the mandated local role was increased by the state without state funding for the necessary increased costs.

However, not all activity changes established pursuant to statute or rule constitute "new or increased" activity requiring state funding. M.C.L. § 21.234(5) explains what the POUM provision excludes:

(a) A requirement imposed on a local unit of government by a state statute or an amendment to the state constitution of 1963 adopted pursuant to an initiative petition, or by a state law or rule enacted or promulgated to implement such a statute or constitutional amendment.

(b) A requirement imposed on a local unit of government by a state statute or an amendment to the state constitution of 1963, enacted or adopted pursuant to a proposal placed on the ballot by the legislature, and approved by the voters, or by a state law or rule enacted or promulgated to implement such a statute or constitutional amendment.

(c) A court requirement.

(d) A due process requirement.

(e) A federal requirement.

(f) An implied federal requirement.

(g) A requirement of a state law which applies to a larger class of persons or corporations and does not apply principally or exclusively to a local unit or units of government.

(h) A requirement of a state law which does not require a local unit of government to perform an activity or service but allows a local unit of government to do so as an option, and by opting to perform such an activity or service, the local unit of government shall comply with certain minimum standards, requirements, or guidelines.

(i) A requirement of a state law which changes the level of requirements, standards, or guidelines of an activity or service that is not required of a local unit of government by existing law or state law, but that is provided at the option of the local unit of government.

(j) A requirement of a state law enacted pursuant to section 18 of article 6 of the state constitution of 1963.

Thus, under a POUM analysis, not every required change in school activities requires state funding under the Headlee Amendment. Judicial Attorneys Ass'n, supra at 603, 597 N.W.2d 113. Headlee, at its core, is intended to prevent attempts by the Legislature "to shift responsibility for services to the local government ... in order to save the money it would have had to use to provide the services itself." Id. at 602-603, 597 N.W.2d 113.

Taxpayers alleging a violation of the Headlee Amendment may file a request for declaratory relief in the Court of Appeals under Const. 1963, art. 9, § 32.⁴ In this case, plaintiffs have brought suit under art. 9, § 32, alleging that the Legislature violated the second provision of art. 9, § 29 by requiring new activities and increases in existing activities without providing sufficient additional funding. Because of the extensive history of similar litigation between these parties, a brief review of the earlier suits is required.

II. HISTORY

Many of these plaintiffs have brought allegations of underfunding against these defendants in earlier suits. In 1980, the first of these suits was filed; it was not resolved until seventeen years later. Durant v. Michigan, 456 Mich. 175, 566 N.W.2d 272 (1997) (Durant I). Chiefly at issue in Durant I was a reduction in state funding for special education activities. Ultimately, this Court not only granted declaratory relief for the plaintiffs, but also, in an award that deeply divided the Court on the issue of the Court's authority, awarded money damages. `In this case, there is no claim for damages and we need not revisit the issue of the propriety of a damages award, but would note that even the proponents of money damages in Durant I described it as "atypical" and predicated the claim for the award on the prolonged duration of Durant I. Subsequently, the Legislature, perhaps taken aback by the monetary damages award, undertook to work statewide: equity by making available similar relief to those local and intermediate school districts that were not plaintiffs in Durant I. As the legislation described it, it was to be in "settlement and compromise of any claim or claims that were or could have been asserted by these districts and intermediate districts" in the Durant I litigation. M.C.L. § 388.1611f(1), (2), (4). To receive the settlement funds, however, a school district had to provide the State Treasurer with a board resolution

waiving any right or interest the district or intermediate district has or may have in any claim or litigation based on or arising out of any claim or potential claim through September 3, 1997 that is or was similar to the claims asserted by the plaintiffs in the consolidated cases known as Durant v. State of Michigan. [M.C.L. § 388.1611f(1). Similarly, see M.C.L. § 388.1611f(2).]

Three hundred eighty-two of the local and intermediate school districts named as plaintiffs in the instant suit adopted the statutorily prescribed resolution, timely sent the executed resolutions to the State Treasurer, and received settlement payments.⁵

Several months later, in 1998, plaintiffs taxpayers and school districts brought a second suit, alleging that the system the state used for distributing funds resulted in an underfunding of the schools for the years 1997-1998 through 2000-2001 in violation of the Headlee Amendment. Durant v. Michigan (On Remand), 238 Mich. App. 185, 605 N.W.2d 66 (1999) (...